EXECUTIVE SUMMARY This report on strategic analysis of the airline industry with Emirates Airline, as a casestudy is to help concerned

managers gain a closer review of changing environments inwhich the company operates. As a result, they are able to position themselves in themarketplace, to make better decisions on strategic management. As in the current globaleconomic recession with falling demand and uncertain economic recovery, the need for business to identify strategic issues becomes vital. This assists managers to review their strategies, to identify their core competence, competitive advantage and any sources of profit available to the business. In this effort, they are able to respond to change andovercome the situational difficulty and possibly achieve superior performance afterwards.The report outlines appropriate strategic options for business sustainability. In thesituation of uncertain demand, cost management needs to be effectively executed.Consolidation and concentration within alliances may also be necessary for reducingcosts and gaining benefits. Route restructuring is needed to focus on routes of profitability. As to the case of Emirates, the company will continue to sustain and gaincompetitive advantages forwards, considering that strategic management take fulladvantages of their core competences, economies of scale, learning and experiencecurves gained throughout its life. Cost reduction is a long-term necessity for a capital-intensive airline. Thus, cost cutting in the value chain needs to be strictly considered. Inview of shot-term effect of an economic downturn, strategic objectives for the situationshould be emphasis on market penetration by cutting price in existing markets andcompetition on price basis when customers become price-sensitive nowadays.3

1INTRODUCTIONAim It is vital to review the progress of business, particularly in a circumstance of rapidlychanging contexts. In this regard, there are core attempts that strategic management needto do in reviewing business performance. In order to respond to change effectively, thecompany must access its efficiency in current development direction. They need toidentify their competitive advantages, position themselves and find out how competitivethey are in the marketplace. As a result, management must redefine their business goalsand set new strategic objectives to sustain in a dynamic environment. Scope
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This report uses Emirates Airline as the case study and develops business strategies usingupto-date information. Company Background From its humblest startup, Emirates flew its first routes out of Dubai with just two aircraft a leased Boeing 737 and Airbus 300 B4 in 1985 (Stanik, Smith, Erakovic, 2007).Emirates pursues its focused differentiation in a legacy airline of luxury, hi-tech,excellent quality. It has been successful and is now the Gulfs largest carrier, one of theworlds five best airlines, and expects to become the worlds largest airline by 2015(Hugh, 2007). The success story of Emirates Airline is a phenomenon in terms of stablegrowth, continuous innovation and significant global expansion. Emirates has drawn outworthy lessons, even for major airlines.However, the current global economic recession has enormous impact on business.Obviously such an economic downturn affects business sustainability in several aspectssuch as market demand, customers changing preferences and behavior, financial deficits,internal resources etc. Economic recovery is uncertain. It is important that managementare aware of the short-term effect and its potential medium impact on the business.

Emirates, therefore, must take its core competences, competitive advantages to overcomesuch a situation and map out strategic objectives to sustain in the future.

2 STRATEGIC ANALYSIS2.1Research Methodology This report provides some exposure to practical review of the airline industry. It alsolooks into the case study business: Emirates Airline to explore its business progress.A macro environment analysis has been spotted to review various external influences on business and shed lights on future trends that may affect the industry. Analysis of Portersfive forces will help understand industry competition and outline influences ondevelopment of markets and business. Using this model helps the company build astrategy to keep ahead of these influences.Further, the spotlight is on analyzing the internal environment. In reviewing the business performance and companys strategies in place, key resources, a SWOT is essential. Thisis done in an effort to help strategic management assess how to capitalize on businessstrengths, minimize the effects of weaknesses, make the most of any opportunities andreduce the impact of any threats.Various sources have been used to gather industrial data. Most of the data is fromsecondary sources such as database searches, industry reports, industry conferenceagenda, news articles, journals, the World Wide Webs for business research websites:IBIS, Roy-Morgan, business website and competitors websites. Theory from textbooksis used to back up arguments in writing this report.6

2.2 External Environment 2.2.1 Macro Environment AnalysisEconomic forces For airline industry, demand for travel depends enormously on economic conditions.Pride, Elliot, Rundle-Thiele, Waller, Paladino & Ferrell, (2006, p. 61) contend thatcurrent economic conditions and changes in the economy have a broad impact onsuccess of organizations marketing strategies. Emirates grew and developed its business in The United Arab Emirates which has a strong economy (World Fact Book,2009). The markets where it selected to operate in are also powerful economies of stablegrowth (Appendix 1 shows
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country GDP). Indisputably, stable economic growth is aspringboard to success of an airlines development due to increasing demand in air travel by high-income people for business and leisure. Emirates recorded an increase in passenger numbers of more than 15 per cent annually (Stanik, et al, 2007).Recent economic downturn has significant impact on the industry. Air travel demand hasfallen dramatically. Several major airlines will cut domestic and international capacityfurther in 2009 due to a falloff of about 25 30% over the last quarter of 2008 (NewYork News, 2009). Bisignani (2009) argues that the state of the airline industry today isgrim. Demand has deteriorated much more rapidly in the economic slowdown. IATA,which represents 230 airlines including British Airways, Cathay Pacific, Emirates andUnited Airlines, also raised its estimate of international airline losses in 2008 to $8.5 billion, from its previous $8 billion estimate, according to Bisignani (2009). The industryis in intensive care (Roy Morgan, 2009). The challenge is how to survive beyond thecurrent crisis. Political forces Air travel between countries is by negotiated agreements (Dervaes, 1998).

Aviationregulations between governments impact greatly on the success of an airlines operations Weismen (1990) agrees most governments have strict regulations on foreign carriers tooperate certain routes in their home countries to protect the national or designated airline.In the case of Emirates Airlines, however, Dubai is an unprotected market. Its open skies policy helped Emirates to become a carrier that can compete with the worlds largestairlines (Stanik et al, 2007). Emirates has grown in scale and stature not through protectionism but through competition - competition with the ever-growing number of international carriers that take advantage of Dubais open-skies policy (Stanik et al,2007). Emirates has enjoyed the benefits of global market shares from enteringinternational destinations such as America, New Zealand and Australia due to recentagreements on full traffic rights from the two governments (Stanik et al, 2007). Aviationderegulation has boosted airlines to develop for open route entry, exit of air carriers,competitive fares, service frequency (Goetz and Sutton, 1997). Further liberalization inthe industry is unstoppably increasing. Hence, the playfield competition becomes moreintense. Social and cultural

Social and cultural factors have influences on development strategies. Both domestic andinternational markets where Emirates operates have culture diversity. Dubai, Australia,Canada, U.S.A and U.K are multi-cultural countries. Benefits come from a variety of consumers trends in accordance to their values, attitudes, education, religion andlifestyles. As a fact, stable incomers make holidays annually. Another example shows, inU.S.A, three quarters of high-income people take an air trip each year (Hanlon, 1999). Itis true in European countries where most people have a strong demand to travel onannual holidays. Emirates has advantages operating in destinations where the trend of air travel is socially enhanced. Technological forces Latest technology is a success driver in airline industry. The need for technologicaladvances to become the first mover in the industry will create the advantage of gainingmore of the lucrative business market (Oum, Park and Zhang, 1999). Emirates is fullyaware of this principle in sustained investments in latest technology pursuing its8

differentiation in the 5-star standard airline. Emirates current order-book stands at 244aircrafts of the newest Boeing and Airbus, with a total value of approximately US$60 billion. It is already the youngest and will be one of the most modern fleets in worldwidecommercial aviation (Emirates, n.d.). It aims to be a pioneer in technological advances,Emirates signed in-flight mobile phone coverage agreement with Aero Mobile,developing the use of mobile phones onboard (M2 Communications Ltd., 2006 ) . For many years, Emirates has been awarded numerous awards such as the worlds airline of technological advances, Best Global Airline Website, Best in-flight Entertainment, BestIT developer in in-flight entertainment etc. (Emirates, n.d). Sustainability Rosenthal (2008) states that high fuel prices and increasing shortage of natural resourcesare facing manufacturers to make smaller, more eco-friendly vehicles. Further, theenvironment has been degraded by global warming and climate change and the airlineindustry has been a factor to a faster-growing source of greenhouse gas emissions(Rosenthal, 2008). For years,
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airlines have countered pressure from environmentalistswith denials and public relations about their green credentials (Rosenthal, 2008). Inrecent years, airlines are working hard to develop biofuel for their jets. It is high time thatairlines need to enter an environmental partnership with aircraft builders for eco-friendlyaircrafts, quieter takeoffs and landings, substantially reducing environmental impacts. 2.2.2 Industry Environment AnalysisPorters Five Forces This will give a snapshot of the industry competition level (Thompson et al, 2007). Threat of new entrants: A highly profitable market boosts increased level of competition (Hill, Jones, Galvin andHaidar, 2007). In this effort, new firms will enter to take some market shares away. The9

Asia Pacific region is an example of a dynamic market where inbound tourism enjoysincreasing growth of 7.9% and outbound with 25% by 2010 (WTO, 2008). All airlines,operating in the region before the current financial crisis, were having high profits:Qantas profit after tax: $618 million in 2007 (Qantas report, 2007); Cathay Pacific of HK$7,023 million in 2007 (Cathay Pacific, 2007). Consequently, Emirates, together withother players, have thrived to exploit new regional markets for high profitability asdemand is growing. Rivalry among established companies: Emirates competes with Air France-KLM and Lufthansa, the two largest carriers inEurope; with Cathay Pacific in Asia Pacific region; and with United Airlines in theAmericas (Hoovers, 2008). These well-established network carriers operate within thesame destinations such as NZ, UK, Hong Kong and America. The competition isaggressive as the global industry is witnessing boosting growth of low-cost airlines(Hofmann, 2007). Bargaining power of buyers: Competition between companies is intense. Emirates may face a threat now and in futurewhen customers nowadays have an ability to make demands on their products, in term
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of lower prices, higher service or product quality. Therefore, Emirates is unlikely to exhibithigh rates of turnover over time due to price reducing, and investing more in productinnovation (Hill et al., 2007). Bargaining power of suppliers: Boeing and Airbus are the two dominant aircraft producers for the worlds airlines.Orders by all airlines for the latest aircrafts are placed to either of them. As a large buyer,Emirates still has to face the threat of paying higher prices or even delivery delays.Moreover, Emirates depends so much on these suppliers as required products aredifferentiated while the suppliers have high expertise. Substitute products: Most airlines offer products of similar features: low price, good quality and excellentservice. In the region, for example, other direct substitute products to Emirates areQantas, Cathay Pacific, and Singapore Airlines. Therefore, Emirates will experiencechallenges when most players become competitive enough to launch new productsglobally. An example is Virgin Blue, which launched V-Australia for Trans-Pacificservices in 2008 (Virgin Blue, n.d). Customers benefit from a wider choice for their products of cheaper price but higher quality. Strategic Groups There are obviously strategic groups existing in the industry in similar markets. Examplesare named: Cathay Pacific, Qantas, Air France-KLM and Lufthansa. These major playersoffer similar products in terms of luxury passenger package, young flyers, in-flightentertainment etc. This signifies that Emirates is aggressively competing with others. Key Success Factors Cost competitiveness: This is vital for a capital-intensive industry such as airlines (Oum, Yu, 1999). It is criticalthat good managers can run operation costs at minimum level to increase highest profits.To balance total operation costs, the management must solve the problem on cost cuttingin process to keep profitability (ANZ, 1990). Economies of Scale:

Emirates is well-established with strong network alliances over international destinations.On the other hand, Emirates has continuously invested in its fleet and enjoyed high profitability (refer to Appendix 4). This means the company is able to increase capacitywhile still able to maintain fixed costs compared with other players. Emirates can have11

access to global markets with greater geographical coverage. Thus, this creates a high barrier to other entrants due to high costs and scope of business. Brand loyalty and product quality: Emirates has built up its brand and image significantly within the last two decades. Morecustomers have become loyal and chosen Emirates when travelling from the Middle Eastand Europe or NZ (Stanik et al, 2007) because of high quality, product innovation andexcellent service. Appropriate strategy: Emirates is differentiated as a legacy airline where advanced technology, staff skills andancillary services are the main drivers for success. Therefore, Emirates is aware of theneed for continuous innovations, not only in fleet and staff expansion but also in premium services. Emirates has been renowned for technology development and skilledstaff of multiculture backgrounds (Stanik et al, 2007). Nature of customers and market segments Market segmentation has been obviously defined: legacy airlines, low-cost and budgetairlines. As a luxury and legacy airline, Emirates has determined its focuseddifferentiation, targeting at sophisticated customers and business travelers. As its logosays: Step aboard an interactive tour of all the elements that make up the Emiratesdifference, on and off the ground excellent service, outstanding comfort and superior technology (Emirates, n d.).Industry markets have become apparently segmented. Boosting budget airlines haveattracted passengers and created higher competition when customers become more price-sensitive. This requires Emirates to re-consider strategic development direction.

Absolute cost advantages Emirates actually obtained advantages from Dubais ultra-efficient airport, tax-

freeenvironment and especially low-labor costs, less than 20 per cent of its total costs whilecompetitors struggled with that up to 35 to 40 per cent (Stanik et al, 2007). Brand loyalty Emirates has built up its brand significantly within the last two decades. More customershave become loyal and chosen Emirates when travelling from the Middle East andEurope to New Zealand and Australia (Stanik et al, 2007) in terms of high productquality, product innovation and excellent service. Economies of Scale As outlined in Key Success Factors 2.3.3 Established Value Chain Emirates is renowned for a huge range of properties, diversified business, contributing toits full operations. Most operations are owned and run by Emirates. Dubai InternationalAirport has exclusive Emirates Terminal 3 (Emirates, n d.). Emirates adopts verticalintegration into its core business structure, incorporating diversified properties. Thisresembles itself through manufacturing, marketing and technology. Emirates directlyoperates check-in, service desks, boarding and lounge services, baggage and handling andairport push-backs (Emirates, n d.). In addition, Emirates hotels & resorts; Emirates skycargo; Emirates aviation college for pilot and staff training; Emirates engineering centrefor repair, maintenance and training; Emirates catering, incorporate business support(Emirates, n d.). These activities make up smooth operations for the airlines success.Obviously, Emirates has a great potential to create added value through verticalintegration in the value chain, defined by Hill et al (2007). As stated, there are manyEmirates-branded subsidiaries and partner companies that operate in conjunction with the business. On the basis of this assessment, Emirates outweighs competitive advantages14
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over competitors, in terms of productivity, cost efficiency and entrepreneurialmanagement. 2.3.4Key strategies employed Reviewing the companys business-level strategies, its focused differentiation as a 5-star standard airline, underlines product development in terms of luxury, excellent quality andservice. Emirates has proven to be a successful company exploiting this market segmentwith high profitability.Considering its capabilities, competences, competitive advantages and economies of scale, Emirates has decided to expand global markets on its own. Explaining to thedirection of not joining a major alliance, Maurice Flanagan, ViceChairman, answeredthe company had examined and could not see any business case for it (Stanik et al, 2007).Explicitly, this indicates how strategic the management are as they consider possibleimpact of entering major alliances with strong competitors of similar-level economies of scale, operating within the markets and channels. Taking into consideration that it is well-established and can compete with other major players with its own competitiveadvantages and core competences. Emirates avoids giving away its knowhow,technology and other resource values to potential competitors (Hill, et al., 2007). This becomes an example of excellent strategic management.Emirates is in stable growth stage of the industry lifecycle. The companys strategieshave been appropriate. Thus, Emirates grew at an average annual rate of 25% - one of the20 biggest and the five most profitable airlines in the world in 2004 (Stanik et al, 2007).Appendix 4 shows revenues and profitability.15

2.3.5SWOT Analysis A SWOT analysis, enclosed as Appendix 3, provides a clear basis for examiningEmirates business performance and prospects. It helps management review its strategicdirection in response to changing contexts.The thorough analysis of external and internal environments discloses significantimplications. The company is able to review its strengths, weaknesses in the contextualenvironments. Strategic management are those who are able to identify future trends for the business and respond to changes, particularly in the current economic downturn.Appendix 2 details future challenges and trends

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2.4Strategic Options for an Economic RecessionOutline of Industry Issues The airline industry is experiencing hard time ever in the financial crisis, facing the prevailing issues: Slowing down in key economies such as US, Japan, China and EU. Overcapacity in many markets, especially in long-haul markets this is linked toderegulation and alliances where competition is intensive. Falling yields due to overcapacity, low-cost airlines and falling demand Rising labour costsIt is clear that weakened economic condition combined with significant financialobligations, including financial deficits, increasing unemployment, falloff in traveldemand makes recovery uncertain for the airlines (Doganis, 2005). Most airlines scale back on planned expansions. Management should be aware of situational strategies inorder to sustain business. Possible strategic principles for companies operating under conditions of aneconomic recession: Cost cutting and cost management in any activities of the value chain need to beexecuted. In the situation of uncertain demand, bureaucratic costs, involved inmanaging vertical integration of full operations from inputs and in-line processesfor the business, may hamper cost efficiency (Hill et al, 2007).

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Management should decide upon whether route restructuring is needed, (Doganis,2005). Focused operations should be intended for profitable routes. Companys assessment on cash reserves and financial capability is important.Management should be aware of sufficient finance to survive or need state aid,(Doganis, 2005).17

Consolidation and concentration within alliances, (Brueckner, 2001) result inefficient operations and cost reduction while companies still benefit from profitability. Strategic options for Emirates Airlines It needs to consider that cost reduction is vital as long-term necessity when demand iscurrently uncertain.Internal resources and organization structure are the keys to consideration for strategicoptions. They can be: Restructure organizational resources Cost management by reducing bureaucratic costs Network and fleet rationalizationMoreover, Emirates needs to redirect its strategy in focused differentiation to pricecompetition for lager market shares as customers become more pricesensitive. Further,the growth of low-cost airlines is increasing. Management need to consider whether thereis a need to compete on low-cost flights considering that Emirates has competitiveadvantages from experience curves and economies of scale throughout its life of development.18

3CONCLUSION AND RECOMMENDATIONS

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From analyzing external and internal environments, it is worth that Emirates managementidentify its capabilities and competitive advantages and access how competitive it is inthe field. From such an analysis, there are implications requiring Emirates to respond tochange in changing contexts such as political, technological and particularly currenteconomic downturn. Management must be aware of issues and develop new strategiesaccordingly in order to sustain.In response to the outlined challenges (Appendix 2) in an economic recession, Emirates,in order to succeed, should follow credible direction of development strategies, in termsof cost reduction, market penetration, to be recommended: As labor accounts for 25-35% of total costs (Doganis, 2005), it is possible for Emirates to restructure organizational resources. Allen (2008) suggests thatreducing staff numbers, reallocating resources is appropriate in the event of internal revenue cutback. This is a trustworthy solution in expense control.Besides, Emirates need to renegotiate work practices and control wage increases,(Doganis, 2005). To survive beyond current financial crisis, Emirates need to outsource someoperations in the value chain such as engineering, maintenance, catering or ground handling. This will significantly help reduce bureaucratic costs run.However, the company will benefit from high expertise and efficiency bycontracting services, (Hill et al, 2007). Market penetration is recommended through cutting prices in existing markets.Emirates should redirect its strategy to price competition to widen marketcoverage from lower-cost market. This effort is to balance short-term objectivesagainst long-term needs, guided by Howard (2008). This is probable becausecustomers are more price-sensitive and growth of budget airlines is increasing. Emirates need to re-access its profitability within particular geographic markets. Itis necessary to go into code-share alliances in certain markets where there is a19

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decline in profitability. By going into strategic alliances, Emirates will cut downsignificant costs, and obviously still gain marketing benefits of large size andnetwork spread and reduce competition on duopolistic routes, (Brueckner, 2001). From competitive advantages and economies of scale, Emirates can alsostrengthen or expand the function of Emirates cargo flights to existing markets togain profitability

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